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While concerns over swelling budget and current account deficits cast a pall over the U.S. currency’s longer-term prospects, an overemphasis on the big picture is already causing some investors to miss out on the latest leg of the rally, according to Peter Jacobson, managing director at Rhicon.

“People are probably focusing on the deterioration of the U.S. balance sheet as a whole and how the twin deficits blow out, looking forward 5, 10 years,” said Jacobson, who helps oversee $700 million from Singapore. “The market is being too clever in looking that far down the line. The deficit in the U.S. is going to be problematic, but that’s later on.”

Jacobson sees the dollar’s resurgent link with rate differentials fueling gains in the months ahead as the Federal Reserve tightens policy to control inflation, while speculation mounts that slowing growth will delay hikes from the Bank of England and the European Central Bank.

Jacobson isn’t the only macro manager betting that climbing yields will drag the dollar higher. While America’s fiscal freewheeling has soured Richard Benson, head of portfolio investments at Millennium Global in London, on the currency’s long-term prospects, he’s wagering that near-record spreads between U.S. and European rates will support the greenback in the coming months.

“The very slow and gradually widening interest-rate differentials against the euro have now reached a tipping point where that is very powerfully positive for the U.S. dollar,” said Benson, who helps manage $20 billion. “In a relatively low-volatility macro environment, that becomes increasingly important.”

Millennium Global increased its exposure to the greenback in April amid a slowdown in European economic growth, in what Benson called a “tactical” move. That position has helped the firm’s main strategy erase its 2018 decline as returns surged later in the month.

Both Jacobson and Benson expect much of the dollar’s outperformance to come against the euro. The common currency’s tepid performance over the latter half of the first quarter amid dovish signals from the European Central Bank was the catalyst behind Millennium Global’s dollar bet.

Jacobson sees “terrible” forward-looking data dragging the euro-dollar pair back to $1.15 in the coming months, from about $1.1780 currently. Such a decline would mark an about-face after the shared currency strengthened to a three-year high of $1.2555 in February.

Yet the conventional wisdom on Wall Street suggests otherwise. Naysayers point to a mix of eroding U.S. fundamentals, economic resilience abroad and technical barriers as obstacles for further greenback appreciation. The median analyst forecast among those collected by Bloomberg for the euro-dollar exchange rate -- the most widely-traded currency pair -- is for a rebound to $1.25 by year-end.

Read more: When is the right time to fade this dollar rally?

For Serge Houles, head of investment strategy at systematic hedge fund IPM Informed Portfolio Management, some of the greenback skepticism is warranted. IPM recently scaled back its long-dollar position in the midst of the currency’s rally.

The Stockholm-based firm, which manages about $5.5 billion in its macro strategy, puts on trades depending on four broad dimensions: valuation, risk premium, macroeconomic factors and shorter-term flows. Dollar-positive capital reallocation prompted Houles’s models to go long the currency at the beginning of the year, helping the fund to an 8.7 percent gain year-to-date.

Though valuation concerns have reduced the size of the bet, Houles said that positive flow dynamics still make the dollar a profitable long position to have.

“From a relative perspective, still, one of the top positions has been to be long the dollar,” Houles said. “We’re making money on that position, so we feel pretty content.”